by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Tomorrow’s Mortgage Industry March on Washington, to save the seller-contributed down payment assistance programs, may be for naught. It looks like the deal’s been cut already.
Last month, I explained that House Financial Services Commmitee Chair, Barney Frank, was maneuvering to save the seller-contributed down payment assistance program. Chairman Frank wanted to restore these programs and held risk-based pricing (higher upfront MIP) as his leverage. HUD Secretary Preston wanted risk-based pricing and held the seller-assisted DPA programs hostage. Apparently, the HUD Secretary flinched this past weekend and signaled that he would bless the restoration if he got what he wanted.
Rumor has it that Chairman Frank is working with Central California Congressman Dennis Cardoza, and his builder buddies, to green light this prior to the October 1, 2008 deadline. The deadline was part of Chairman Frank’s original compromise in the last enacted housing law. Frank made a stink about risk-based pricing, defeated it, and held it as a chit.
The new program appears to be exactly what I thought it might be; tiered credit scoring for pricing and qualification. What we learned two weeks ago was that the default risk, associated with 100% financing, can be mitigated through strict adherence to published underwriting guidelines. In layman’s terms, that means if you’re getting a break on the down payment, you better have good credit and a strong ability to repay the loan. That’s logical; it’s true risk-layering and is the cornerstone of “make sense underwriting”.
What don’t I like about this development? I hate the hypocrisy associated with the seller-assisted DPA programs. As Sean Purcell, said, it violated the “spirit” if not the letter of the FHA rule. I also dislike the incessant lobbying our industries have done to promote this hypocrisy. I’d much rather have seen HUD offer 100% financing rather than to perpetuate this flagrant abuse. I detest the “wink-wink, nudge-nudge” characteristic of these “charities”. That’s why I never got involved in the industry’s “political movement” to restore these programs.
Alas, it isn’t law, yet. Chairman Frank should have the support of his side of Congress but the Senators haven’t signaled that they’re playing ball. With both the Mc Cain and Obama camps approving of the restoration, and 3 of the 4 candidates coming from the more gentile side of Congress, that arm twisting shouldn’t be too hard.
My prediction? This deal gets hammered through by September 26, 2008. As for the future? Look for HUD to insure 100% financing by 2010.
PS: Regardless of how this deal went down, I’m a loan originator; I”ll work my butt off to operate within the framework of the law to get your borrowers approved. Sean Purcell and I will discuss these developments next Monday, at 4PM PST, on Bloodhound Blog Radio. If you’re interested in learning how these DPA programs can assist your buyers, attend the teleconference. We’ll give you a heads-up on what the credit-score minimums and debt-to-income requirements might look like.
Lenn Harley says:
I don’t like the hypocracy of the charities either. However, I see no reason why a seller, the owner of his own property and equity therein should be precluded from doing what he wishes with his own money.
I don’t care if the seller puts up a 10% down payment for the buyer. It’s his money.
I can’t wait until 2010.
Lenn Harley
September 9, 2008 — 4:12 pm
Jonathan Blackwell says:
Seems like a reasonable compromise was presented and hopefully we can work through the issue.
Jonathan Blackwell
September 9, 2008 — 5:47 pm
Reid says:
26th Sept looks like a Plausible date …… But lets just hope for the best. Let it be the law soon
September 9, 2008 — 7:57 pm
Mike Rohrig says:
I have always been annoyed by “charity” programs since they made money out of a loop hole that everyone saw. It is/was legal money laundering.
I think for our current market they should drop the rule to allow anyone to gift funds to the buyer. Let it ride for a year or 18 months and see where we are.
September 10, 2008 — 10:49 am
Ted Kunda - NW Area Manager says:
Brian,
Great Blog! Thanks for the opportunity to have your community express their questions and concerns regarding H.R. 6694 and DPA.
As I have had the opportunity to view literally hundreds of blogs regarding DPA, I find that the theme seems to be the same regardless of personal views and interests. SAVE DPA has been a primary strategy for alot of mortgage and real estate professionals around the country. As a mortgage professional for over 16 years, I have never witnessed a coming together of these professionals as we have seen with the anticipated elimination of DPA.
I am not going to toot my horn and tell you all of the good that Nehemiah Corp. of America has done for communities around the US. The information is readily available on various sites around the internet. Most of your community already is aware of those facts.
I have heard more than once the terms “legal money laundering” in describing what we do for the communities around the country. There is not and never has been and “wink-wink, nudge-nudge” environment that you believe exists with non-profit DPA’s. The only “wink-wink, nudge-nudge” that I have seen is where the Realtors on a transaction conspire to increase the sales price to offset the “gift” that the seller offers a prospective buyer. When this occurs, it really is not a gift at all. In my state this is called gouging. Agents cross the boundaries of Fiduciary Duty when involved in these types of transactions.
The fees charged by DPA’s are minor considering the cost of providing a gift, the support staff, customer service personnel and funders required. These fees are always funneled back to provide additional services for communites throughout the U.S.
If you are waiting for HUD to provide 100% financing, dont hold your breath. They have had 10 years to develope a program and have failed miserably time and time again to provide one. They cant even control their own database let alone create new programs to help the American people. The AmeriDream video clearly states HUD’s intentions of trying to provide the service.
Our main goal is to keep the service available for the deserving Americans accross the country who need assistance. We need to stimulate growth in the economy without a cost to taxpayers who already foot the bill for our governments mistakes. We cannot afford the estimated losses to our economy with the removal of DPA. Not to mention that some of your community may be out of business if it is removed.
Join us in ensuring the American public that you are doing what you can as a professional in this industry to help them during this troubled time.
http://www.dpagroundswell.org
September 11, 2008 — 12:18 pm
Brian Brady says:
“If you are waiting for HUD to provide 100% financing, dont hold your breath. They have had 10 years to develope a program and have failed miserably time and time again to provide one.”
Ted, do you think 100% financing from HUD would be cheaper to the consumer than the seller-funded DPA programs, like Nehemiah?
September 11, 2008 — 1:15 pm